Common Estate Planning Mistakes & Misconceptions

There are many misconceptions about how estate planning or writing a Last Will And Testament works. There are also many common mistakes made in estate plans that could lead to an undesirable result. Take a look at the Common Estate Planning Mistakes And Misconceptions and see if there are things you need to change or rethink.

Living Will Mistakes & Misconceptions

  • Thinking that a Living Will is the same as a Last Will & Testament. A Living Will states whether you want to be on life support. A Last Will & Testament states who you want to give your assets if you die. These two documents are totally different and they serve entirely different purposes.

Medical Power Of Attorney Mistakes & Misconceptions

  • Having no medical power of attorney. A medical power of attorney is a part of a good incapacity plan or plan that states who will make medical decisions for you if you cannot. It is very difficult for health professionals if there are several people giving conflicting instructions concerning your care. It is better for you to choose a responsible person and name them in a medical power of attorney so that health professionals know who to deal with.
  • Thinking that a durable power of attorney and a medical power of attorney are the same. A durable power of attorney normally deals with who can make business and financial decisions for you. A medical power of attorney usually specifies who can make medical decisions for you. Make sure you have both documents in order to cover all of your affairs.

Durable Power Of Attorney Mistakes & Misconceptions

  • Thinking that you can use a power of attorney after a person dies. If someone gave you power of attorney, the authority you received from that document ends the moment that person dies. If you need to transact business for a person after they die, that person who has died will need to have made you a trustee or executor in documents duly prepared and executed by him before he died.
  • Not fully understanding the power given to the person whom you made durable power of attorney. A person to whom you have given durable power of attorney has a tremendous amount of power. Be careful in your selection as it may be very difficult to undo their actions after you have given them authority to act for you if you find that you are not happy with something they have done.

Declaration Naming Preneed Guardian Mistakes & Misconceptions

  • Choosing the wrong guardian or no guardian at all. Choosing a guardian is part of creating a good incapacity plan which states who will handle your affairs if you cannot. Be sure to choose a guardian who is responsible. If the proposed guardian’s own life is in shambles, that is probably a good indication that they will not make a good guardian.
  • Thinking that a legal guardian will have free reign to spend the ward’s money as he pleases. Guardianships often entail court supervision. This means the guardian cannot do whatever he wants to do with the ward’s money. Many people have changed their minds about serving as guardian when they learned that the job entails hard work and a lot of accountability to the court.

Last Will & Testament Mistakes & Misconceptions

  • Thinking that you will not have to go to court if there is a will. A will does not keep you from having to go to court. In fact, the only way to enforce the provisions of the will is to go to court.
  • Thinking that the person designated in a will to be the executor has authority before the person who wrote the will dies. An executor in a will receives his authority by being acknowledged and officially appointed as executor by a court. If you intend to exercise authority before a person dies, you may need to have some other written authority such as a power of attorney.
  • Having no plan at all (procrastination). Some people think if they do a will they will die soon. However, did you ever consider that refusing to do a will does not keep you from dying? If refusing to do a will would keep you from dying, 75% of people who have died would have never died!
  • Creating a will that gives all assets to all children equally. This sounds good in theory but it can create problems. When a property has several co-owners it may be hard to decide who will live there, will payment of rent be required if a family member lives there, who will manage the property and who will pay property taxes and insurance.
  • The “Heir Property” Phenomenon. This phenomenon is created when several people claim ownership of property once owned by their parents or grandparents. The property is often in the name of the deceased loved one and, technically speaking, has not been legally transferred to anyone in particular. The bad thing about this is, after not doing probate for generations, in order to transfer the property to someone all of the deceased people who are part owners will have to be probated in court. In some instances, this could be 10 to 20 probate cases to transfer a property depending upon how many family member have died owning an interest in the property. Also, the peril is that if no one assumes the responsibility for property taxes on this heir property as generations die off, the family could find themselves in jeopardy of losing the property.
  • Thinking that “Lika” is your relative. Some people mistakenly believe that a close friend who is “Like A” relative has the same type of legal standing as a relative of a deceased person. They are surprised when the probate court makes a distinction between someone like a relative and a true relative. If you want “Lika”, your nonrelative friend, to receive something from your estate, you should put them in your will.
  • Choosing the wrong executor. Some states restrict who can be a personal representative or executor of an estate. For instance, Florida prefers Florida residents and denies parties with felony convictions. Make sure the person you choose to serve as personal representative is trustworthy, responsible and qualified in accords with the state statutes.
  • Creating conflicting documents (the will says John gets the money, the bank says Sally). Be sure your estate plan has no conflicts. If the bank beneficiary designation states a particular person but your will states another person, the bank document will prevail even if it is not the most recent document.
  • No back up parents (guardians) for children. If you are the only surviving parent of your minor child or children, remember to name a guardian who will care for them in the event of your death. This advice applies if you are the only surviving parent. This does not mean you have the right to give your minor children to someone other than their other parent if the other parent is living at the time of your death.
  • No business succession planning. If you own a business it is important for you to plan what will happen in the business in the event of your death. For instance, does your spouse or other relative have the right to assume the role you played? Are they capable of assuming the role? Do you have life insurance that provides enough money to get the business afloat and take care of your dependants during a business transition caused by your death?
  • Attempting to will the homestead or main residence to someone other than the spouse or minor child. Florida law provides certain homestead protection to spouses and minor children. You cannot leave the homestead to anyone if you have a spouse or minor children.
  • Attempting to leave a specific amount of cash to specific beneficiaries. This may be difficult because, due to changes in the economy or changes in life circumstances that require you to use your cash, you cannot be sure how much cash will be available to distribute upon your death. It may be better to give beneficiaries percentages of the cash available.
  • Unknowingly creating provisions in the will that exposes the estate assets to creditors. For instance, if you write a will directing that your homestead be sold and the proceeds distributed, you are obviously assuming you will die with no debt. However, if you die with debt, you may be unknowingly exposing your estate to creditors who will receive your proceeds from the sale of your homestead.
  • Leaving the original Last Will accessible so that an unhappy party can destroy it. If you have written a will and you know that someone will be unhappy with the will, do not leave the will in a place where it can be found and destroyed by a disgruntled party after your death. If this happens, it may be hard for the true beneficiaries to prove the contents of the will even if they have a copy of the will because a destroyed will is presumed to have been revoked. Always give the original will to the key beneficiary who will be interested in seeing that your will is carried out.
  • No inheritance protection (so that property does not end up with in-laws). You may want your property to go to your son. But, would you want your son’s wife to receive your property? Well this is a possibility if your son’s wife is his only heir. You must order your affairs carefully if you do not want it to end up with in-laws.

Living Trust Mistakes & Misconceptions

  • Choosing the wrong trustee. A trustee must be trustworthy, dependable, have an appropriate level of business savvy and willing to carry out the terms of your trust agreement. If your proposed trustee is in constant dire financial straits, it is probably not a good idea to appoint them as trustee. Remember that most trustees will operate without court supervision and the temptation to steal or misappropriate the trust assets could be great if the trustee is having personal financial challenges.
  • No estate tax planning. If you have a sizeable estate, tax planning is critical to limiting your tax liabilities. A failure to plan often means the IRS will be the unintended beneficiary of your estate!
  • Failing to fund the trust. If you create a trust agreement and intend for your property to be governed by the trust, you must change the title to the property by literally placing the property in the trust. This is called funding the trust. It is not uncommon for someone who does not fully understand how a trust operates to prepare a trust agreement and fail to put the property in trust. When such failure occurs, the property which was intended to pass through the trust without the need for court proceedings must now go to the probate court for distribution. Having to go to court will be the opposite of what you wanted, especially if you mistakenly thought you set up a valid trust.

Deed & Joint Tenancy Mistakes & Misconceptions

  • Attempts to convey property of persons who are already deceased without court assistance. Even if you are the heir of the deceased person and will eventually own the property in question, do not attempt to deed or sell the property until you are the actual owner. Otherwise, if your name is not yet on the deed and you sell the property to a buyer, you have not given the buyer good title to the property and could suffer consequences of this improper inadequate transfer in the future. Wait until your deceased loved one property is in your name before you try to sell it.
  • Improperly drafted deeds on jointly held property. Deeds are sometimes prepared with the intent of creating a joint tenancy with right of survivorship. The joint tenancy with right of survivorship is the kind of deed that allows the survivors on a deed to own the property if an owner dies. The joint tenancy deed eliminates the deceased property owner without the need to go to probate court. Most non lawyers do not know how to phrase the deed to accomplish this goal. Without the right language, they create the wrong kind of deed and end up having to go to court when a property owner on the deed dies. Most importantly, when the deed is not phrased properly and court involvement is necessary, often the deceased owner’s interest in the property is transferred to someone the original owners never intended to have the property. Don’t draft your own deed. Hire an experienced attorney.

Totten Trust Mistakes & Misconceptions

  • Failure to list beneficiaries on bank accounts. Money in bank accounts with beneficiaries goes directly to the beneficiaries without regards to the debts of the deceased person who owns the bank account. If the deceased party fails to list a beneficiary on a bank account, the funds will have to be dispersed by a probate court and the funds may be paid to creditors to pay off the deceased person’s debt. You can prevent the use of bank accounts to pay debts after your death by naming beneficiaries on the accounts.

Life Insurance Mistakes & Misconceptions

  • Listing minors as beneficiaries on life insurance policies. You may be surprised to find out that most insurance companies will not release a minor child’s insurance proceeds to his surviving parent. Insurance companies will often require court supervision of the process. This often means the money is not accessible without a court order. If you would like for a minor child to readily access life insurance proceeds without continuous court involvement, consult an attorney about setting up a trust or custodial account to achieve this goal.
  • Inadequate amount of insurance. Insurance is not just for burial. It is designed to take care of whoever depended upon your income. When you choose insurance, a few of the factors you need to consider include how much money your dependents will need, whether you need to pay off a mortgage, whether you would like to make a donation to your favorite charity and whether you have a business that will need cash to stay afloat in the event of your death.

Other Mistakes & Misconceptions

  • Failure to review and adjust estate plan annually in response to changes in circumstances. A divorce, a new baby, new property or new money are only a few things that should prompt the re-evaluation of your estate plan. Re-evaluate your plan annually to prevent unintended parties from receiving your assets. For instance, would you want your ex-spouse to receive your life insurance proceeds?
  • Hiring a generalist. Most people think an attorney can do everything but surgery. However, not all attorneys know how to draft an estate plan. Be sure to hire an attorney with more than a shallow understanding of estate planning.
  • Do it yourself. Never do your estate plan or Last Will & Testament yourself. There are too many ways to make a costly mistake. If you are thinking about writing your own will, read Can I Write My Own Will.
  • Failure to regularly take inventory of and value assets. It is a good idea for estate planning and insurance purposes that you take an inventory, preferably with pictures, of all of your valuables. This inventory should be updated at least once a year and it will be quite helpful in handling your estate or filing a homeowner’s insurance claim if the need arises.
  • Failure to maximize gifts. If you have a sizeable estate, you may be able to reduce your tax liability by giving gifts. This, however, can be tricky as the laws are constantly changing in this area and there are some inherent pitfalls you should plan to avoid if possible. For instance, if you give gifts, it may affect your future Medicaid benefits. Speak to an experienced estate planning attorney so that you can maximize the benefits of giving and minimize the pitfalls.
  • Putting important papers in safe deposit box only you can access. If your loved ones need to access your safe deposit box and only you are authorized to access the box, they will need a court order to gain access if you have died. Getting a court order could be costly and time consuming. In addition, if your loved ones don’t have a key to the safe deposit box, the bank housing the safe deposit box may compound the problem by only scheduling a locksmith to open the safe deposit box on certain days. It is not uncommon for the loved ones of the decedent to face the hassle of having to wade through several steps and wait several days to access a safe deposit box. Consider putting your important papers in a fire proof box in your home.
  • Failure to make provisions for the payoff of mortgages on property given to someone in a will. If the property is not paid off, you didn’t give your loved one property, you gave them the mortgage you left unpaid.
  • Thinking that another person’s lawyer is your lawyer. In matters involving a Last Will or probate, there may be several lawyers involved. Never assume that a particular lawyer is your lawyer unless you have retained and paid that lawyer to represent you. For instance, the estate lawyer in a probate matter is not your lawyer unless you are the personal representative of the estate or have specifically retained the lawyer.
  • Thinking that a court cannot proceed if you don’t show up. If you are unhappy with a Last Will and there is a court hearing on the matter, you should attend the hearing. Some people think the court cannot proceed if they don’t show up or if they don’t sign a document evidencing their agreement with the process. This is not true. The judge can make a decision without you, particularly if due process has been served. Show up for the hearing.

Whether you are involved in a will contest or want to create a sophisticated trust for asset protection, call V C W Law, P.A., at 877-833-0101, or e-mail our Miami office today. We return all calls promptly and make home and hospital visits as necessary.

Practice Areas